Consumer Rights for Gold Loan Borrowers in India

From before availing a loan to during and after, you as a consumer, have rights mandated by the Reserve Bank of India (RBI), further strengthened by the ‘Lending Against Gold and Silver Collateral Directions’. The directions will be in effect across lenders by April 1, 2026. This blog explains the consumer rights every Gold Loan borrower in India should know, helping you stay informed.

Your Rights Before Taking a Gold Loan
 

Assaying and Valuation Procedure

●    Lenders must have a standardised valuation process across all their branches and display it on their website
●    Lenders must ensure your presence during the assaying process when you pledge your collateral
●    Any deductions for stone weight, fastenings, or other components must be explained to you during this process

RBI’s Standard Valuation Guidelines

The gold you submit as collateral has clear methods of valuation based on its purity:

●    Whichever is lower: the average closing price for that karat of gold over the preceding 30 days, OR the previous day’s closing price, will be referred to
●    The price has to be retrieved as published by the India Bullion and Jewellers Association Ltd (IBJA) or by a SEBI-regulated commodity exchange
●    If the price information for the specific karatage isn’t available, lenders must use the published price for the nearest purity, proportionately adjusting your collateral’s weight based on purity to finalise an accurate valuation

Also Read: Top 10 Reasons to Choose Gold Loan Over Other Loan Types

Loan-to-Value (LTV) Ratio

While banks determine their own final LTV ratio, the RBI mandates a cap for loans of different amounts. As opposed to the previous mandate of a 75% cap on all loan amounts, the RBI has now introduced a tier-based LTV ratio.

 These LTV ratios must be maintained throughout your entire loan tenure. For bullet repayment loans, the LTV calculation includes the total amount you’ll repay at maturity.

Assaying Certificate

Post assaying and upon your acknowledgement, you will receive a certificate stating:
●    The purity (karats)
●    Gross weight of your collateral
●    Net weight of the gold content
●    Any deductions made
●    Any damage or defects noticed
●    An image of your collateral
●    Calculated value at the time of sanction

Clear Documentation and Communication

The loan agreement must clearly specify:
●    A description of your pledged items
●    Their calculated value
●    Complete auction procedures
●    Circumstances that would trigger an auction
●    The notice period you’ll receive before any auction
●    Timelines for releasing your pledged items after full repayment
●    Procedures for refunding any surplus from auctions
●    All applicable charges

Additionally, any official communication regarding the loan will be in your preferred language or the language of the region.

Also Read: Gold Loan Calculator Explained: How to Estimate Your Loan Amount

Consumer Rights During a Loan Tenure

Safe Storage and Handling Rights

●    Your collateral must be stored only in the lender’s branches staffed by their employees and equipped with suitable safe deposit vaults
●    Only the lender’s employees can handle your collateral, and this must occur only at their branches
●    Your pledged collateral can be transported from one branch to another only in specific circumstances, such as branch shifting or closure, exceptional reasons per the lender’s policy, or as otherwise permitted under the Directions
●    Lenders must conduct periodic surprise verification of pledged collateral and maintain records (your loan agreement will include a consent clause for the same, which should be communicated to you at sanction)

Compensation Rights

●    If your pledged collateral suffers damage caused by the lender during the loan tenure, they must bear the cost of repair
●    If your collateral is lost, or if there’s any deterioration or discrepancy in quantity or purity discovered (during internal audit, at return, or at auction), lenders must suitably compensate you

Right to Access Pledged Jewellery Information

●    At any point, you can request details about your pledged jewellery, including its storage location and condition
●    Lenders are required to maintain proper custody and insurance of your gold

Also Read: Understanding Gold Purity: 18K, 20K, 22K, 24K Gold Explained

Renewal Rights

●    If you want to renew your loan, the lender may approve it after you submit a formal request and clear a credit assessment if the loan is above ₹2.5 lakh
●    The renewal will only be permitted within the permissible LTV and on a ‘standard’ classified loan
●    Renewals of bullet repayment loans are allowed only after paying accrued interest. Such renewals and top-ups must be clearly identifiable in the lender’s systems

Repayment and Release Procedure Rights

●    Upon full repayment or settlement, the lender must release your pledged collateral on the same day, or within a maximum of seven working days
●    If release is delayed beyond seven working days for reasons attributable to the lender, you’re entitled to compensation at ₹5,000 per day of delay
●    If the delay is not the lender’s fault, they must communicate the reasons to you
●    When your collateral is returned, it must be verified for correctness according to the details in your certificate, and this verification must be to your satisfaction

Unclaimed Collateral Procedures

If you haven’t approached the lender for release after full repayment, they must send you periodic reminders through letters, email, or SMS if your contact details are registered. If you fail to retrieve your pledged gold and it remains with the lender for more than 2 years after your full repayment or settlement date, it’s considered unclaimed.
In this case:
●    Lenders must periodically conduct special drives to locate you
●    Reports on unclaimed collateral must be reviewed by the lender’s Customer Service Committee or Board at six-month intervals

Also Read: Gold Investment for Beginners: Complete Guide to Buying and Storing Gold

Your Rights in the Event of Default

Auction Process Protections

These steps ensure that you have plenty of time and notification before you lose possession of your gold:
●    Before initiating any auction procedure, the lender must communicate to give you adequate notice during which you can repay or settle your dues
●    Lenders can proceed with the auction only if they cannot locate you despite their best efforts, and after issuing a public notice (the auction is required to proceed after one month from the public notice date)
●    The auction must be announced through advertisements in at least two newspapers (one in the regional language and another in a national daily)
●    The first auction has to be held physically in the same district where the lending branch is located

Post-auction Settlements
●    After the auction, the lender must provide you with full details of the value fetched and dues adjusted
●    Any surplus from the auction must be refunded to you within seven working days of receiving full auction proceeds

Also Read: What Happens If You Default on a Gold Loan? Complete Guide to Gold Loan Default

To Conclude

By understanding your rights, you can confidently use gold loans as a financial tool without fear of exploitation. Always read your loan agreement, clarify doubts, and stay aware of your repayment obligations. To explore flexible funding, opt for the Gold Loan from Poonawalla Fincorp today.

FAQs

What happens if I don’t repay my Gold Loan?
If you miss one EMI payment, you’ll receive a penalty. But failing to pay any amounts for over 90 days classifies your loan as a Non-Performing Asset (NPA) after about 90 days. Now, the lender has the legal right to initiate the recovery process, which could lead to an auction or legal action.

How much notice must a lender give before auctioning my pledged gold?
Lenders are required to provide at least 30 days’ written notice before auctioning your jewellery. This notice must clearly state the outstanding amount, auction date, and your right to settle dues beforehand.

What is the new RBI rule for gold loans?
The RBI’s latest gold loan circular introduces tiered LTVs, mandates rules for lenders like gold purity certification and collateral returns, caps bullet repayment tenure at 12 months, and introduces repayment and auction guidelines.